Regulatory Environment of India

Introduction to the regulatory environment in India

The regulatory environment also known as Legal Aspects of Business, Business law, Commercial Law, Mercantile law is a subject which provides an element of limitation to all the business strategies regulated through different statutory provisions and rules. It not only emphasizes on substantive law but also on procedures and compliances thereby prepares the students of Business for the legal environment they would eventually face in the corporate situation.
The legal environment and its 3 “I’s”- The rule of law is envisaged by the people of any state and hence in India the preamble of the Constitution starts with the words “We, the people…..” The term signifies the importance of a persuasive legal regime which has stood the test of “We the people” and thereby every provision of law must be declared constitutional. The 3 “I” of the legal environment are -
i. Institutions ii. Instruments iii. Individuals with discretionary powers
In short the people of country give the State power to create Institutions, these institutions give instruments created through different sources of law and in turn these institutions appoint individuals with discretionary powers. These powers are directly governed, regulated, monitored and executed through the instruments which legitimate their appointments. The rider being that the powers will be exercised by being fair and unbiased. The principle of “FAT” is essential for the individuals exercising discretionary powers i.e. they have to fair, accountable and transparent. As every law has to be declared constitutional, thereby the laws for the corporate are scanned through the same lens.
Constitution of India
The Constitution of India introduces the rule of law enforceable in the country through the preamble. It highlights the fundamental, guiding and elementary framework of the constitution. In case of any ambiguity to interpret the Constitutional provisions it declares the freedom of people, their rights, duties, basis of government policies and sets the limitation for all transactions commercial or otherwise. In the 1995 case of Union Government Vs LIC of India the Supreme Court has once again held that Preamble is the integral part of the Constitution.
Originally, the preamble described the state as a "sovereign democratic republic" but after the Forty-second Amendment (in 1976) it was changed to "sovereign socialist secular democratic republic". The term “socialists” implies social and economic equality, meaning the absence of discrimination on the grounds only of caste, colour, creed, sex, religion, or language. This also guarantees social equality as equal status and opportunities for all. The government endeavours to make the distribution of wealth more equal and provide a decent standard of living for all ensuring economic equality, the commitments of a welfare state. The government has adopted a mixed economy and the government has framed many laws to achieve the aim.
CONSTITUION IS SUPREME LAW- Clear understanding of concepts is vital for any discussion on taxation or legal matters as power to levy and collect tax is derived from Constitution. If it is found that any Act, Rule, Notification or Government orders is not according to the Constitution, it is illegal and void and it is called ultra vires the Constitution.
INDIA IS UNION OF THE STATES-Our Constitution generally follows British pattern, though concepts of federal structure are borrowed from American and other Constitutions.
India is a Union of States- The structure of Government is federal in nature, Government of India (central Government) has certain powers in respect of whole country. India is divided into various States and Union Territories and each States and Unions like Gujrat, Maharashtra, Tamilnadu, Kerala, Uttar Pradesh, Punjab etc. and Union Territories like Pondicherry, Chandigarh etc.
Administration of State-President of India is head of the State. (Here, the word State is used with a different meaning). The States has three organs.
A. LEGISLATIVE ORGAN-Parliament consists of President, Lok Sabha(House of People) and Rajya Sabha(Council of States). Parliament makes laws for governance of the country. It also sanctions budgetary expenditure for Government.
B. EXECUTIVE (ADMINISTREATIVE) ORGAN-Administration is looked after by Government for which Council of Ministers is at its head. The Council of Ministers is headed by Prime Minister. Government has to implement the laws passed by Parliament.
C. JUDICIAL ORGAN-It has always been found in all the countries that control and check over executive power s essential. In absence of such control, misuse of power is very much likely. Our Constitution therefore provides independent judiciary with wide powers. The highest court in India is Supreme Court. Law declared by Supreme Court is the law of the land and is binding on all subordinate Courts, tribunals and Executive.
Our Constitution has endeavored to maintain balance among these three organs namely legislation, administration and judiciary, to ensure proper checks and balances.- Parliament to enact the laws, Judiciary to interpret the law and Executive to implement the law. These three ‘estates’ have tremendous influence on the public life. [Similarly, newspapers have tremendous influence on public life and in shaping public opinion. Hence, newspapers are often called ‘fourth estate’]

STATE GOVERNMENT ORGANIZATION- A structure similar to the one at Centre is provided for each State. Governor (Rajyapal) is the head of the State, State Legislature (Vidhan Sabha) which is elected body of the people’s representatives; passes various Acts. Some States also have Vidhan Parishad (similar to Rajya Sabha). The state Government is administered under a Council of Ministers of which Chief Minister is the head. Each State has a High Court having wide judicial powers.

Judicial Organ- Independent judiciary is biggest safety of a citizen.
SUPREME COURT- Supreme Court has wide powers of writ jurisdiction under Article 32 in respect of enforcement of fundamental rights. Article 136 grants discretion to Supreme Court to grant special leave to appeal (called Special Leave Petition-SLP) from any judgment, decree, determination, sentence or order in any cause or matter passed or made by any court or tribunal in India. Article 141 of constitution provides that law declared by Supreme Court is binding on all courts within India.

HIGH COURTS-Each State has a High Court. High Courts have been granted powers to issue writs. The Writ is an order or process issued by court or judicial officers, asking any person to perform or refrain from performing the Act. Article 226 grants powers to High Courts to issue writs not only in respect of fundamental rights but for any other purpose. This is a very powerful right and is very useful in case Government or other authorities do not give justice to a person. Application made to High Court for this purpose is called writ petition. Since this power is given under Constitution, this cannot be limited by any State (Act) or Government rules.

Legislative Organ- Various Laws can be passed (and amended) by Parliament within the framework prescribed by the Constitution.

MODE OF PASSING ACT-First, a bill is presented to Parliament. The bill is a draft of the law proposed to be passed. Often the bill is presented on the basis of recommendations of some Committee. Sometimes, the bill is studied by a Parliamentary Committee after it is presented in Parliament. The bill is discussed and it is then passed with or without amendments. After it is passed by both Houses of Parliament, it is sent to President for his assent. The bill becomes a statute (Act) on the date on which President gives his assent. The Act generally provides the date on which the Act comes into effect. Sometimes, it comes into effect immediately, while sometimes powers are delegated to Government to decide the date/s on which the Act will come into force. Often, powers are given to bring the Act into force in parts, i.e. various provisions of the Act can be brought into force in stages on different dates. Similar procedure is adopted to amend (modify) an existing Act.
ORDINANCES-Act can be passed only when Parliament is in session. (General Sessions are Budget session, Monsoon session, winter session etc.) However, need may arise to take immediate action and it may not be possible to wait till Parliament session starts. In such cases, President has been empowered under Article 123 of Constitution to issue Ordinance. Such Ordinance has the same force as Act of Parliament, except that the Ordinance is valid only for a limited period. If Parliament approves the Bill pertaining to the matter contained in the Ordinance, it is converted into an Act. Otherwise, the Ordinance automatically lapses at the expiration of 6 weeks from the date when Parliament assembles. (In case of States, the Ordinance can be issued by Governor under Article 213 of Constitution and other provisions regarding its lapse etc. Ordinance is really an emergency provision and is expected to be used sparingly. However, some States (and even Central Government) have re-promulgated the same Ordinances again and again, instead of getting them passed in Parliament/State Legislature.
DELEGATED LEGISLATION-Parliament is mainly concerned with policies of law. It is not interested in routine procedures etc. Moreover, since the situations are constantly changing, changes are inevitable. It is not practicable to approach Parliament and seek its approval for every minor change. Parliament, therefore, delegates some powers to other Authorities (Usually Government or some Board) to make rules, regulations and issue notifications. This is called delegated legislation. Often these are required to be published in Official Gazette. If the rules or regulations are made or notifications are issued under the power granted in the Act. They have the same force as the main act.
TRADE CIRCULARS AND TRADE NOTICES-It is normal for Government to issue trade circulars, trade notices and clarifications from time to time. These are issued to clarify the view of the Government in respect of any Act, rules or notifications or to give some information, etc. Such trade circulars/trade notices do not have any legal force and they are not binding on taxpayers. If such trade circular or trade notice is beyond the provisions of Act or Rules, such trade notice cannot be binding on Government also, as there are no estoppels against a statute. The circulars/trade notices are not binding on quasi-judicial authorities or courts.
Administrative Organ-Administration is looked after by Government for which Council of Minister is at its head. The Council of Ministers is headed by Prime Minister. Prime Minister can head the administration till he enjoys the confidence of Parliament. Each minister is assigned a particular ministry. Government deals with the matters through various departments and generally head of the department who is a senior Govt. officer is called ‘Secretary’. Further, various senior and junior officers are appointed by Government (additional Secretary, Joint Secretary, Deputy Secretary, Commissioner, Assistant Commissioners etc.) for administration. Powers are delegated to these officers for execution of Government orders/ policies.

Business Law- Business law also known as mercantile or commercial laws are civil laws that cover the rights, duties, compliances, procedures, conduct of person or entities in business carrying the work of trade, commerce including transactions of sale, services, formations of separate legal entities and their mandate as per the statutory provisions. A study of business law covers following Acts:-
The Indian Contract Act 1872
Special Contracts
The Sale of Goods Act, 1930
The Negotiable Instruments Act, 1881
The Indian Partnership Act, 1932
The Companies Act, 1956
The Consumer Protection Act, 1986
The Information Technology Act, 2000

Corporate and Commercial legislation under Constitution-In the basis scheme of constitution, broadly, aspects of law and order, agriculture, public health etc. are looked after by State Governments.

Article 246 of our Constitution indicates bifurcation of powers to make laws, between Union Government and State Governments. Parliament has exclusive powers to make laws in respect of matters given in list I of the Seventh Schedule to the Constitution (Called “Union List”). List II (State List) contains items under jurisdiction of States. List III (concurrent list) contains items where both Unions and State Governments can exercise power.
UNION LIST- List I, called “Union List”, contains items like Defense of India, Foreign affairs, War and Peace, Banking etc. Items in this relevant to topics covered in this book are as follows:
ENTRY 43-Incorporation, regulation and winding up of trading corporations, including banking, insurance and financial corporation’s but not including cooperative societies
ENTRY 44 Incorporation, regulation and winding up of corporations, weather trading or not, with objects not confined to one State, but not including Universities
ENTRY 45-Banking
ENTRY 46- Bills of Exchange, cheques, promissory notes and other like instruments
ENTRY 48-Stock exchanges and future market.
ENTRY 97 Any other matter not included in List II, list III and any tax not mentioned in list II or list III.(These are called ‘Residual Powers’.)
STATE LIST-State Government has exclusive powers to make laws in respect of matters in list II of Seventh Schedule to our Constitution. These items include Police, Public Health, Agriculture, Land etc. Relevant entries are as follows-
ENTRY 32- Incorporation, regulation and winding up of corporations, other than those specified in List I, and universities; unincorporated trading, literary, scientific, religious and other societies and associations; cooperative societies.

CONCURRENT LIST-List III of Seventh Schedule, called “concurrent list”, includes matters where both Central Government and State Governments can make laws. This list includes items like Criminal law and Procedure, Trust and Trustees, Civil procedures, economic and social planning trade unions, charitable institutions, price control, factories, etc. Important entries for our discussion are as follows-
ENTRY 7-Contracts including partnership, agency, contracts of carriage, and other special forms of contracts, but not including contracts relating to agricultural land.
ENTRY 24- Welfare of labour including condition of work, provident funds, employers’ liability, workmen’s compensation, invalidity and old age pensions and maternity benefits.